The U.S. Federal Communications Commission took the first step Thursday toward reworking two related programs that provide telephone subsidies for low-income residents, with commissioners calling for part of the funding to support broadband service.

The FCC's Lifeline Assistance and Link-Up America programs, in place since 1985, now subsidize monthly telephone service and installation for poor U.S. residents. The FCC voted to launch a notice of proposed rulemaking (NPRM) that asks for public comments on whether to include broadband and bundled telecom services in the programs.

The NPRM also looks for ways to eliminate waste and abuse in the programs, and questions if the programs' budgets should be capped. The budget for the Lifeline and Link-Up programs, part of the larger Universal Service Fund (USF), has grown from $162 million in 1997 to $1.3 billion in 2010.

"This trend is unsustainable," said Robert McDowell, a Republican member of the commission.

Some critics have noted that prepaid mobile phone plans seem to be driving up the programs' budgets, which are supported by fees on traditional long-distance telephone service. But Democratic commissioners questioned a cap on the fund, saying it would be difficult for the FCC to support both phone service for low-income residents and expand the program to cover broadband with a cap in place.

"Many would go without phone service but for these programs," said Commissioner Mignon Clyburn. "Given the economic downturn over the last several years, it is not surprising that the fund has grown."

Broadband access has become an essential communications service to hunt for jobs or interact with government services, she added. "We would be on a fool's errand if we think we can address both the voice and the broadband requirements [of low-income residents] while simultaneously capping the fund," she said.

Clyburn said she hoped the NPRM's focus on eliminating waste and fraud in the programs would lead to cost savings that the FCC could apply to broadband subsidies.

The NPRM, part of a larger FCC effort to reform the USF, proposes a national database for eligibility in the programs, and it suggests that the programs end subsidies for services that aren't used for several months. The NPRM also proposes that one line per household be eligible for the subsidies.

The reforms will make the programs more "efficient and effective," said Julius Genachowski, chairman of the FCC.

The NPRM also proposes pilot programs for expanding Lifeline/Link-Up to broadband. In an NPRM, the FCC makes proposals and asks for public comment.

But some critics suggested the FCC's proposals didn't go far enough. The FCC should scrap Lifeline-Link-Up and start over with a new program, said Craig Settles, a community broadband consultant and founder of Successful.com. The FCC took little concrete action toward supporting broadband service with the programs, he said.

"If you listen to what was said, almost the whole focus was on ways to eliminate fraud and waste, which is great for budget management," Settles said. "But it does nothing to actually address broadband issues until the program saves enough money to fund pilot programs that gives us an idea how Lifeline can be modified to address broadband issues such as adoption."

The programs aren't likely to support broadband for a year or more, he added.

"There were lots of allusions to what Lifeline could potentially do to help people if it results in more people connecting to broadband, but nothing said today did more than paint nice pictures," Settles said. "There was nothing hard hitting to address issues such as, how do you take a $10 telephone subsidy and have it make a meaningful impact when the combined price of broadband and telephone service is likely to be $50 to $60?"

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.